1959 (6) TMI 20 - HC - Income Tax

Court rules leasehold interest payment on manganese mines as capital expenditure, not deductible. Legal expenses not deductible.

The court held that the payment of Rs. 15,27,000 for the leasehold interest in manganese mines constituted capital expenditure and was not deductible. ... - Issues Involved:1. Whether the sum of Rs. 15,27,000 paid for the leasehold in manganese mines was capital expenditure and not an allowable deduction.2. Whether a proportionate amount of Rs. 98,280 per annum of the total sum paid for the leasehold manganese mines was deductible in determining the profits of the business.3. Whether the legal and other expenses incurred for the leases of the manganese mines were admissible deductions under section 10(2)(xv) of the Income-tax Act.Issue-wise Detailed Analysis:1. Capital vs. Revenue Expenditure:The primary issue was whether the Rs. 15,27,000 paid by the assessee company for the leasehold interest in manganese mines constituted capital expenditure. The court examined the nature of the rights acquired under the leases. It was concluded that the leases did not convey any proprietary right to a stock of manganese ore but merely authorized the lessee to win and remove the ore. This right was considered a capital asset, and the payment was for acquiring the means to obtain the stock-in-trade, not the stock-in-trade itself. The court referenced the Privy Council decision in Raja Bahadur Kamakshya Narain Singh v. Commissioner of Income-tax, which held that payments for acquiring rights under leases were capital expenditures. Therefore, the Rs. 15,27,000 was deemed capital expenditure and not deductible.2. Proportionate Deduction:The second issue was whether a proportionate annual amount of Rs. 98,280 from the total sum paid for the leasehold could be deducted in determining business profits. Given the court's conclusion that the initial payment was capital expenditure, it followed that even a proportionate amount could not be considered a deductible expense. The court reiterated that the right to win manganese ore was a capital asset, and thus, any related payments were on capital account.3. Legal and Other Expenses:The third issue pertained to the admissibility of legal and other expenses incurred for the leases under section 10(2)(xv) of the Income-tax Act. The court held that these expenses were not admissible deductions. Since the primary expenditure for acquiring the leasehold rights was capital in nature, any ancillary expenses incurred in connection with these leases were also considered capital expenditures and not allowable as deductions under the specified section of the Income-tax Act.Conclusion:The court answered all three questions against the assessee-company:1. The Rs. 15,27,000 paid for the leasehold interest was capital expenditure and not an allowable deduction.2. Even the proportionate amount of Rs. 98,280 per annum was not deductible in determining business profits.3. Legal and other expenses incurred for the leases were not admissible deductions under section 10(2)(xv) of the Income-tax Act.The assessee-company was ordered to pay the costs of the Commissioner of Income-tax. The reference was answered accordingly.